Deck 18: Managerial Accounting Concepts and Principles

Question 1

One difference between financial and managerial accounting is that the external users that use financial information must plan a company's future, but the internal users of managerial accounting information generally must decide whether to invest in or lend to a company.

Answer 1

False

Question 2

Adopting a lean business model should have no effect on cost in a modern manufacturing environment.

Answer 2

False

Question 3

The balanced scorecard aids in continuous improvement by augmenting financial measures with information on drivers or indicators of future financial performance.

Answer 3

True

Question 4

Managerial accounting assists in analysis, planning, and control of costs.

Question 5

Just-in-time manufacturing is a system where companies manufacture products only after the orders have been received from customers.

Question 6

The concept of total quality management focuses on continuous improvement.

Question 7

The focus of financial accounting is on an organization's projects, processes, and subdivisions, and the focus of managerial accounting is on the whole organization.

Question 8

Control is the process of setting goals and determining ways to achieve them.

Question 9

The main goal of the lean business model is the elimination of waste while satisfying the customer and providing a positive return to the company.

Question 10

Managerial accounting provides financial and nonfinancial information to an organization's managers and other internal decision makers.

Question 11

Total quality management and just-in-time manufacturing are two modern systems designed to improve the quality of management and the products and services offered.

Question 12

Managerial accounting information can be forwarded to the managers of a company quickly since external auditors do not have to review it, and estimates and projections are acceptable.

Question 13

One of the usual differences between financial and managerial accounting is the time dimension of the information reported.

Question 14

The management concept of customer orientation encourages a company to set up its production system to produce large quantities of the same product for all customers.

Question 15

Financial accounting relies on accepted principles that are enforced through an extensive set of rules and guidelines; on the other hand, managerial accounting systems are flexible.

Question 16

Both financial and managerial accounting influence user's decisions and actions.

Question 17

Under a just-in-time manufacturing system, large quantities of inventory are accumulated throughout the factory to be certain that needed components are available each time that they are needed.

Question 18

When the attitude of continuous improvement exists throughout an organization, every manager and employee seeks to continuously experiment with new and improved business practices.

Question 19

The management concept of customer orientation causes a company to spend large amounts on advertising to convince customers to buy the company's standard products.

Question 20

Both financial and managerial accounting report monetary information; managerial accounting also reports considerable nonmonetary information.

Question 21

The main difference between the income statement of a manufacturer and a merchandiser is that the merchandiser includes cost of goods manufactured rather than cost of goods purchased.

Question 22

Product costs are expenditures necessary and integral to finished products.

Question 23

Direct costs are incurred for the benefit of more than one cost object.

Question 24

An employee overstates his reimbursable expenses in one period in order to receive needed additional cash. Since he intends to reduce his expenses the next period by the current overstatement, this act is not considered fraudulent.

Question 25

Product costs can be classified as one of three types: direct materials, direct labor, or overhead.

Question 26

Cost concepts such as variable, fixed, mixed, direct and indirect apply only to manufacturers and not to service companies.

Question 27

Whether a cost is controllable or not controllable by an employee depends on the employee's level of responsibility.

Question 28

Direct materials are not usually easily traced to a product.

Question 29

A sunk cost has already been incurred and cannot be avoided or changed, so it is irrelevant to decision making.

Question 30

Raw materials that become part of a product and are identified with specific units or batches of a product are called direct materials.

Question 31

The cost of partially completed products is included in the balance of the Goods in Process Inventory account.

Question 32

Raw materials inventory includes only direct materials.

Question 33

The Institute of Management Accountants Statement of Ethical Professional Practice requires that management accountants be competent and act with integrity.

Question 34

A variable cost changes in proportion to changes in the volume in activity.

Question 35

Period costs are incurred by purchasing merchandise or manufacturing finished goods.

Question 36

An opportunity cost requires a future cash outlay and is relevant for decision making.

Question 37

An out-of-pocket cost requires a future cash outlay and is relevant for decision making.

Question 38

Manufacturers usually have three inventories: raw materials, goods in process, and finished goods.

Question 39

Costs may be classified by many different cost classifications.

Question 40

Selling and administrative expenses are normally product costs.

Question 41

Which of the following items are management concepts that were created to improve companies' performances?

A) Just-in-time manufacturing.
B) Customer orientation.
C) Total quality management.
D) Continuous improvement.
E) All of these.

Question 42

Newly completed units are combined with beginning finished goods inventory to make up total ending goods in process inventory.

Question 43

The Goods in Process Inventory account is found only in the ledgers of merchandising companies.

Question 44

For a manufacturing firm, cycle time may be computed as process time + inspection time + move time - wait time.

Question 45

The manufacturing statement is also known as the schedule of manufacturing activities or the schedule of cost of goods manufactured.

Question 46

Indirect materials are accounted for as factory overhead because they are not easily traced to specific units or batches of production.

Question 47

Although direct labor and raw materials costs are treated as manufacturing costs and therefore make up part of the finished goods inventory cost, factory overhead is charged to expense as it is incurred because it is a period cost.

Question 48

Raw materials purchased plus beginning raw materials inventory equals the ending balance of raw materials inventory.

Question 49

The manufacturing statement must be prepared monthly as it is a required general-purpose financial statement.

Question 50

Indirect labor refers to the cost of the workers whose efforts are directly traceable to specific units or batches of product.

Question 51

Managerial accounting is different from financial accounting in that

A) Managerial accounting is more focused on the organization as a whole and financial accounting is more focused on subdivisions of the organization.
B) Managerial accounting never includes nonmonetary information.
C) Managerial accounting includes many projections and estimates whereas financial accounting has a minimum of predictions.
D) Managerial accounting is used extensively by investors, whereas financial accounting is used only by creditors.
E) Managerial accounting is mainly used to set stock prices.

Question 52

The series of activities that add value to a company's products or services is called a value chain.

Question 53

Prime costs consist of direct labor and factory overhead.

Question 54

Managerial accounting information:

A) Is used mainly by external users.
B) Involves gathering information about costs for planning and control decisions.
C) Is generally the only accounting information available to managers.
D) Can be used for control purposes but not for planning purposes.
E) Has little to do with controlling costs.

Question 55

Four factors come together in the manufacturing process: beginning goods in process inventory, direct materials, direct labor, and factory overhead.

Question 56

Flexibility of practice when applied to managerial accounting means that

A) The information must be presented in electronic format so that it is easily changed.
B) Managers must be willing to accept the information as the accountants present it to them, rather than in the format they ask for.
C) The managerial accountants need to be on call twenty-four hours a day.
D) The design of a company's managerial accounting system largely depends on the nature of the business and the arrangement of the internal operations of the company.
E) Managers must be flexible with information provided in varying forms and using inconsistent measures.

Question 57

Which of the following items represents a difference between financial and managerial accounting?

A) Users of the information.
B) Flexibility of practices.
C) Timeliness and time dimension of the information reported.
D) Nature of the information.
E) All of these.

Question 58

A manufacturer's cost of goods manufactured is the sum of direct materials, direct labor, and factory overhead costs incurred in producing products.

Question 59

Factory overhead includes selling and administrative expenses because they are indirect costs of a product.

Question 60

The Malcolm Baldridge Award was established by

A) The United Nations.
B) The U.S. Chamber of Commerce.
C) The Malcolm Baldridge Foundation.
D) The U.S. Congress.
E) The SEC.

Question 61

Costs that flow directly to the current income statement are called:

A) Period costs.
B) Product costs.
C) General costs.
D) Balance sheet costs.
E) Capitalized costs.

Question 62

An attitude of constantly seeking ways to improve company operations, including customer service, product quality, product features, the production process, and employee interactions, is called:

A) Continuous improvement.
B) Customer orientation.
C) Just-in-time.
D) Theory of constraints.
E) Total quality measurement.

Question 63

For product costs associated with a particular product to be expensed on the income statement:

A) The product must be transferred to Finished Goods Inventory.
B) The product must still be in Goods In Process Inventory.
C) The product must be sold.
D) The product may be in any of the manufacturer's inventory accounts.
E) The company must expect to sell the product during the next twelve months.

Question 64

A fixed cost:

A) Requires the future outlay of cash and is relevant for future decision making.
B) Does not change with changes in the volume of activity within the relevant range.
C) Is directly traceable to a cost object.
D) Changes with changes in the volume of activity within the relevant range.
E) Has already been incurred and cannot be avoided so it is irrelevant for decision making.

Question 65

An opportunity cost is:

A) An uncontrollable cost.
B) A cost of potential benefit lost.
C) A change in the cost of a component.
D) A direct cost.
E) A sunk cost.

Question 66

A primary difference between variable costs and fixed costs is:

A) Variable costs per unit change in varying increments while fixed costs per unit change in equal increments over the relevant range of activity.
B) Variable costs per unit fluctuate and fixed costs per unit remain constant over the relevant range of activity.
C) Variable costs per unit are fixed and fixed costs per unit are variable over the relevant range of activity.
D) Variable costs per unit change in equal increments while total fixed costs change in proportion to the level of activity over the company's relevant range.
E) Total variable costs are fixed and fixed costs per unit never change over the relevant range of activity.

Question 67

Classifying costs by behavior involves:

A) Identifying fixed cost and variable cost.
B) Identifying cost of goods sold and operating costs.
C) Identifying all costs.
D) Identifying costs in a physical manner.
E) Identifying both quantitative and qualitative cost factors.

Question 68

A classification of costs that is useful for assigning responsibility to and evaluating managers is:

A) Classification by traceability.
B) Classification by behavior.
C) Classification by relevance.
D) Classification by function.
E) Classification by controllability.

Question 69

A direct cost is a cost that is:

A) Identifiable as controllable.
B) Variable with respect to the volume of activity.
C) Fixed with respect to the volume of activity.
D) Traceable to a cost object.
E) Sunk with respect to a cost object.

Question 70

An approach to managing inventories and production operations such that units of materials and products are obtained and provided only as they are needed is called:

A) Continuous improvement.
B) Customer orientation.
C) Just-in-time manufacturing.
D) Theory of constraints.
E) Total quality management.

Question 71

Period costs for a manufacturing company would flow directly to:

A) The current income statement.
B) Factory overhead.
C) The current balance sheet.
D) Job cost sheet.
E) The current manufacturing statement.

Question 72

A mixed cost:

A) Requires the future outlay of cash and is relevant for future decision making.
B) Does not change with changes in the volume of activity within the relevant range.
C) Is directly traceable to a cost object.
D) Contains a combination of fixed costs and variable costs.
E) Has already been incurred and cannot be avoided so it is irrelevant for decision making.

Question 73

Costs that are first assigned to inventory are called:

A) Period costs.
B) Product costs.
C) General costs.
D) Administrative costs.
E) Fixed costs.

Question 74

Last year, Smith Company sold 10,000 units of its only product. If sales increase by 15% in the current year, how will unit variable cost and unit fixed cost be affected?

A) Choice A
B) Choice B
C) Choice C
D) Choice D
E) Choice E

Question 75

Benny, an employee of Parrott Company, used company assets for his own personal gain. This is an example of

A) embezzlement.
B) fraud.
C) internal control.
D) ethics.
E) employment perks.

Question 76

Continuous improvement:

A) Is a measure of profits.
B) Is a measure of costs.
C) Rejects the notion of "good enough."
D) Is not applicable to most businesses.
E) Is possible only in service businesses.

Question 77

An employee is dissatisfied with the resolution of an ethical conflict at his place of employment. According to the Institute of Management Accountants, the employee's next step should be to

A) contact the IMA.
B) contact the next level of management who is not involved in the ethical conflict.
C) make the president of the company aware of the ethical conflict.
D) report the incident to the State Board of Accountancy.
E) resign from the company.

Question 78

A management concept that applies quality improvement to all aspects of business activities is called:

A) Continuous operations.
B) Customer orientation.
C) Just-in-time.
D) Theory of constraints.
E) Total quality management.

Question 79

A management concept that encourages all managers and employees to be in tune with the wants and needs of customers, and which leads to flexible product designs and production processes, is called:

A) Continuous improvement.
B) Customer orientation.
C) Just-in-time.
D) Theory of constraints.
E) Total quality management.

Question 80

The model whose goal is to eliminate waste while satisfying the customer and providing a positive return to the company is:

A) Total quality management.
B) Managerial accounting.
C) Customer orientation.
D) Continuous improvement.
E) Lean business model.